Commercial property recovery 'will take more than five years'

The UK commercial property market will take more than five years to recover
the losses endured during the present downturn, new research claims.

Commercial property has suffered badly during the recessionPhoto: John Robertson

By Graham Ruddick

10:25PM BST 31 Aug 2009

Offices, shops and warehouses have suffered falls in value of around 45pc in just two years and the new forecasts highlight that, while there will be a recovery, it will be painstakingly slow and struggle to reach the over-inflated pricing of 2007.

A number of high-profile investors have returned to the market in the last few weeks to target distressed assets they believe are attractively priced.

However, the research from BNP Paribas Real Estate (BNPRE), previously Atisreal, shows that the recovery in capital values will be hindered by weak occupier demand.

The future appears particularly challengingfor offices, which BNPRE forecasts will rise in value by just 13.7pc from December 2009 to December 2014. It also predicts that rental values will fall 20.5pc in 2009 and 14.4pc in 2010 as financial services groups, a key part of the market, continue to feel pressure. By December 2014, even after a recovery, rents will still be 1.2pc below December 2009.

In all sectors, BNPRE is forecasting that capital values will rise 31.5pc from December 2009 to December 2014. Rents, which lag the investment market by about 12 months, will gain just 10.6pc in the same period following a fall of 12.1pc in 2009.

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Keith Steventon, BNPRE's head of research, said: "[Capital] values should rise next year as long as a slow economic recovery does not hold rents down for longer, and investor enthusiasm for property continues to push values up."

According to alternative research from rival agent NB Real Estate, offices rent may not fall as much as feared in the UK because the amount of "grey space", surplus office space which a tenant sub-lets to other businesses, is falling.

In the City Of London in the second quarter, second-hand office space was 1.4m sq ft, down from 1.6m sq ft in the same period last year and 1.5m sq ft in the first quarter.